I heard quite a bit after the story broke that Delta folks were apoplectic at the leak, that there was a lockdown, but like many such things the hordes subsided and the rumor mill has been mostly quiet. My hunch has been that after the leak their executives took better care of their documents and were more careful holding their tongues, rather than that the airline had abandoned its plans.
While any move towards a revenue-based program might cause some to immediately think of United’s CFO commenting that some of their members are over-entitled, this airline after all seriously considered minimum revenue thresholds for its elite tiers, my thoughts went elsewhere: the summer 2002 move by US Airways to count only full fare tickets towards elite qualification.
Delta’s been looking at revenue-based programs, and the airline that took the first step towards ‘caring’ only about high revenue customers hadn’t done much along those lines since then.
In Randy Petersen‘s opening remarks to the June issue of Inside Flyer he notes that at US Airways Media Day he asked the question about whether they were considering a revenue-based program, and that the airline was less forthcoming about this issue than they seemed to be about any other issue on the table that day. Randy thinks something is up:
While I don’t know anything about Area 54 (the supposed top-secret area popular with UFO conspiracy theorists), I’m pretty sure that something is going on out there. You combine that with rumors coming from the greater ATL area and I’m telling you–people get ready. Are both US Airways and Delta considering changes to their existing frequent flyer programs featuring a conversion to revenue-based programs? With the changes that have already impacted this industry (miles as an industry?), there’s a very strong argument that this is the way of the future.
Me, I don’t think anything is imminent at US Airways. I don’t have inside knowledge, so I could certainly be proven wrong. But I have to believe that if US Airways is serious about acquiring American Airlines, then they have bigger fish to fry than remaking the mileage program. Especially moving to a revenue-based program, which would widely be viewed as a gutting of their loyalty proposition. The last thing they’d want to do is scare away all of the new customers they’d be bringing into the folks via American AAdvantage. They’ll at least tell everyone for awhile that they’re going to build a ‘best in class program’ that ‘combines the best of both airlines’ to ‘deliver world-class loyalty rewards’ for their members.
Now, I’ve written skeptically about a US Airways acquisition of American in the past, so that’s hardly definitive. But if they think they’re serious, then I don’t see change coming to US Airways in this regard over the next 18 months.
Perhaps that’s just my wishful thinking.
A change to revenue-based mileage-earning from flying activity wouldn’t be a huge deal, more miles are earned from non-flying activity than from flying, the question would be what earning rates would look like (whether it would just be an opportunity to give out fewer miles, or would be a shift in whom miles are given to).
And many airlines have revenue-based redemption as an option which complements award charts now, United and Delta both introduced theirs to co-branded credit card holders years ago and American more recently introduced theirs to elites-only, the ability to buy tickets with miles based on the price of tickets.
But what is usually meant by the introduction of a revenue-based program is the end of award charts, the replacement of earning points and spending points based on zones or distance with spending points based on the cost of a ticket. Which is the end of getting outsized value from points. And premium cabin tickets because almost impossible to obtain, because their cash price is often so many times that of a coach ticket. (Most airlines with revenue-based programs also have only one class of service and also limited international service.)
It’s hard to imagine the apocalypse to loyalty that would flow from this. While programs may wring their hands about rewarding the wrong people, or about high redemption costs that they need to manage, in the end these mileage programs are wildly profitable and it’s the smaller, less-profitable ones which haven’t branched as far out from driving business to the airline and into credit card, shopping, rental car, home mortgage, and other spaces. Why in the world would a multi-billion dollar company (the mileage program) risk its entire business model when it’s spinning off large sums of cash?
The credit card partnership with Juniper Bank (now with Barclays) funded America West’s acquisition of US Airways. American Express provided Delta hundreds of millions of dollars of extra liquidity by pre-purchasing Skymiles. United, fundamentally, flew through bankruptcy to support their co-branded credit card partner’s business. (The co-branded card issuer provided both debtor-in-possession financing and exit financing for bankruptcy, and pre-purchase of half a billion dollars of miles.)
And even from a loyalty perspective, it’s not the most revenue that a company wants to incentivize, it’s moving over incremental revenue at the margin, which is something that revenue-based programs often miss.
Ultimately, though, we’ll have to judge based on the particulars of whatever may be introduced, but revenue-based programs tend to be less rewarding and less aspirational — it’s not about the 25,000 mile ticket to Florida, but that not that many more miles can take you to Hawaii or to Italy or Asia, and not that many more miles can do so in a premium class of service. Frequent flyer programs have been the most wildly successful marketing vehicles ever developed because they tap into dreams.
Revenue-based programs are what airlines offer when they figure they have to offer something but it’s not really core to their business model, they figure lots of customers won’t pay enough attention (at least for awhile) to know the difference anyway.
There’ll be plenty of consultants and analysts who sell this as the next big thing, but for any program that does it, it’s likely cutting off their own income streams… not from the airline but from the mileage program itself.